Stewart Information Services Corp

NYSE:STC

Earnings Call Analysis

Stewart's Q3 Earnings Indicate Market Challenges

Stewart reported a lower third-quarter net income of $14 million, which equates to $0.51 per diluted share, a decrease from $43 million the same quarter last year. Total revenues dropped to $602 million, with the Title segment experiencing a 19% revenue decline and a 32% decrease in pretax income. A limp real estate market led to a 7-10% dip in title orders. Despite this, the company maintains a solid financial position, with $380 million in cash and investments over requirements, and a $200 million credit line. Net cash from operations increased to $60 million from $49 million in the previous year, something investors can interpret positively. Looking ahead, the execs expect a transition in 2024, with prospects of normalized double-digit margins by 2025.

Current Real Estate Market Conditions Impacting Revenues and Profits

The real estate market has been challenging with low housing inventory and high mortgage rates leading to decreased activity in both commercial and residential sectors. This contributed to lower operating results for the third quarter compared to the previous year, with Stewart reporting a net income of $14 million or $0.51 per diluted share on revenues of $602 million, a significant decline from $43 million or $1.58 per diluted share during the same quarter in the previous year.

Title Segment Facing Declines Amid Tough Market

Total revenues in the Title segment fell by 19% and pretax income dropped by 32% in a year-over-year comparison, standing at $42 million with an 8% margin, down from the prior year's $65 million and a 10% margin. The current market environment led to declines in opened and closed orders by 7% and 10%, respectively. Additionally, domestic residential revenues reduced by 18% with average fees per file falling by 10%, while the international revenues dipped by 12% due to lower transaction volumes, particularly in Canada.

Real Estate Solutions Segment Demonstrates Slight Dip in Profits

The Real Estate Solutions segment experienced a modest decline with pretax income of $2.6 million compared to $3.4 million the previous year. The adjusted pretax margin remained stable at around 13%. In alignment with broader market trends, the segment saw slightly lower revenues, which were partially compensated by strength in credit-related data businesses.

Financial Strength Despite Operating Challenges

Despite lower net income, Stewart maintains a solid financial position with total cash and investments amounting to approximately $380 million above statutory premium reserve requirements, supported by a fully available $200 million line of credit facility. The company's total stockholders' equity was valued at $1.35 billion with a book value per share of approximately $49.

Future Margin Enhancement Anticipated as Market Rebounds

While addressing the company's future outlook, management highlights efforts and improvements which they believe have positioned them to achieve better margins, expecting to reach 11.5% to 12% when market volumes return to normal. However, the volume currently remains depressed due to excess capacity and market shocks from rapid rate changes, and the fourth quarter orders are projected to move down again.

Investment Income Holding Steady

Investment income had a positive rise during the quarter. This is attributed to a favorable rate environment and is expected to continue to serve as a reliable income source at the present rate.

Agency and Commercial Strategies Implemented for Long-Term Growth

The company has taken specific steps targeted at long-term growth. In the Agency segment, there has been a focus on improving the ease of use and integration, resulting in share gain in selected states. In the direct segment, talent acquisition over the past couple of years has enhanced market position and competitiveness. Lender business growth, from $30 million to $300 million in revenue, reflects better positioning as a strong alternative in the industry. The commercial segment also shows promise, particularly the energy sector, which has seen an increase in revenue contribution from 13% to approximately 25%.

Commercial Division's Fee per File Boosted by Large Energy Deals

The commercial segment fee per file was relatively strong this quarter, supported by significant energy deals. However, with the market being down overall, management is cautious viewing December as a critical month given its historical pattern of numerous closings. Uncertainty might affect the actual closings at the end-of-year, but the company has a substantial amount of business in the pipeline.

Modeling Challenges With 'Other Orders' due to Lumpiness

The 'other orders' category showed a more than 100% sequential increase which presents modeling challenges due to its lumpiness. These orders are primarily driven by home equity stuff and the institutional real estate business, with the average fee per file expected to be closer to purchase transactions due to their nature being more heavily weighted towards bulk acquisitions and reverses. Securitizations can significantly impact the average fee per file in this category.

Tax Rate Abnormalities Expected to Normalize

The third quarter saw a tax rate higher than the usual 24% due to additional tax expenses from lower utilization of foreign tax credits. This had an adverse EPS impact of approximately $0.09 to $0.10. However, this was seen as a one-off event, and the tax rate is expected to normalize in future periods.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and thank you for joining the Stewart Information Services Third Quarter 2023 Earnings Call. [Operator Instructions] Please note today's call is being recorded. [Operator Instructions]

It is now my pleasure to turn today's conference over to Brian Glaze, Chief Accounting Officer. Please go ahead, sir.

[Brian Glaze, executive]

Thank you for joining us today for Stewart's Third Quarter 2023 Earnings Conference Call. We will be discussing results that were released yesterday after the close. Joining me today are CEO, Fred Eppinger; and CFO, David Hisey. To listen online, please go to the stewart.com website to access the link for this conference call.

This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss some non-GAAP measures. For reconciliation of these non-GAAP measures, please refer to the Appendix in today's earnings release, which is available on our website at stewart.com.

Let me now turn the call over to Fred.

[Frederick Eppinger, executive]

Thank you for joining us today for Stewart's Third Quarter 2023 Earnings Conference Call. Yesterday, we released financial results for the quarter and David will review these in a minute. Before doing so, I'd like to update you on our view of the market and our continued progress on important initiatives that we believe will set Stewart up for long-term success.

This quarter, we are proud to celebrate 130 years of business as a pioneer in the title industry and also coming up on our 30 years as a listed company on the New York Stock Exchange. These milestones caused me to reflect on the last 4 years. And looking back, I see that we have made great strides in fundamentally improving Stewart's operating and financial performance to better position ourselves for even more prosperous future.

Although the current economic environment continues to pose significant short-term challenges, we have materially improved our business, creating a strong and more resilient enterprise that will thrive over a full real estate cycle. Even in light of the current economic environment, we continue to intensely focus on our journey to become the premier title service company. We are managing through a challenging environment where we believe mortgage rates will remain elevated into 2024. Rates increased throughout the third quarter to around 7.5%, where they were previously in the high 6% range at the close of the second quarter. Higher mortgage rates continue to impact transaction volumes and we find ourselves at historic lows for sale of existing homes.

At an industry level, we are experiencing historically low purchase volumes combined with low existing home listing inventory, which has kept pricing strong. As we look forward, we see 2024 as a transition year to a more normal market in '25 and believe the next 6 months will continue to be very challenging given the macroeconomics laid on top of the typical seasonal impacts. While we have significantly improved the underlying financial and operational performance of the company, there is more we can and will do. And it is critical we remain focused on improving margins, growth and resiliency through improved scale in attractive markets and enhancing our operational capabilities.

In this challenging environment, it is easy to lose focus on achieving long-period goals. However, I'm looking extremely pleased with the dedication we have shown in making progress on our enterprise initiatives during the third quarter and in our progress towards improving our long-term performance. Maintaining our strong financial position even in this current environment gives us flexibility to continue to pursue these investments and take advantage of opportunities as they arise.

We have continued to manage costs thoughtfully and have taken targeted cost actions where appropriate. We have been careful not to take actions we felt it would threaten our competitive position and long-term value-creating opportunities. We believe that the real estate cycle will get to normalize later in 2024. And the best path forward for Stewart to get through this period is to continue investing in our people and remaining focused on our long-term improvement plan. I believe we have done a good job of balancing strong financial discipline with targeted investments, and we will continue to be very diligent with our expense management during this difficult moment in the cycle.

We remain focused on enhancing our operating model, investments in technology to enhance the customer experience and improve efficiency of our operations and building scale in targeted areas. These strategic investments will cause our cost ratios to remain elevated in a market with low transaction volumes but will set us up for better overall performance in the future. We believe that these long-term investments, coupled with thoughtful near-term expense management will improve our structure and financial performance in the long-term.

We routinely reevaluate markets in our direct operations, where we have the opportunity to increase share and enhance our leadership strength. Given the market uncertainty, we have been more selective in our investment decisions to make sure our deployment of capital provides long-term returns, and I believe we will maintain this conservative approach through the first half of 2024. We remain positive on the commercial market, even though we believe certain sectors remain challenged in the near-term due to changing financial markets such as energy remains strong for us while we see ongoing challenges in sectors like office and multifamily properties.

Growth in all sectors of our commercial operations is an important component of our overall strategy and positions our commercial operations for growth across all business lines has been a key focus of our journey. We are making investments in talent so that we have the leadership in place to achieve these objectives. We are investing in technology to support our commercial operations to allow us to better serve our customers, and we believe our strategies will create long-term growth in the commercial markets for us.

In our Agency business, we are leveraging our technology to drive market share gains, both in this quarter and throughout the year, we have excellent progress on our deployment of technology and services that provide a significantly improved customer experience for our agents. This enhanced experience includes greater connectivity, ease of use and risk reduction for our agent partners. We are pleased that our platform of services for agencies as strong as it's ever been, and we have -- we've begun to see meaningful progress in our target markets, such as Florida, Pennsylvania and the overall commercial market.

In Real Estate Solutions, we are seeing share gains as we leveraged our improved portfolio of services to better and more deeply serve our lender clients. So while we are not immune to the market downturn of these businesses, we've been able to offset some of this with our share gains. A significant point of our investments is focused on improving our technology for the title production process automation and centralization to improve operational efficiencies and capabilities. Our investments have already resulted in significant progress to improving our customer experience across all channels.

An example of this is the one I just mentioned in our agency technology platform, which significantly enhances ease of use and connectivity with agents. Another area of priority as we work to improve our operating efficiency is the centralization and digitization of our title data. We are pleased with the significant process -- progress we have made on this, this year and in the [indiscernible] production levels, we will see considerable improvement in our delivery costs.

We continue to integrate our acquired entities into production and other systems. This helps us to improve our overall customer experience and offers operating efficiencies that we've been building on for the past several years. Integrating the remaining acquired companies is an important priority, and we expect to complete the majority of our integration efforts by mid next year. Improving our financial strength by growing margin has been a significant focus of our journey. We've made good progress with this effort, and we are aware that returns remain depressed during this phase of the cycle. The investments I've mentioned, many of which have material been implemented, should allow us to achieve low double-digit margins as we turn to a normal [ 5 million ] unit purchase market. And specifically, the initiatives that we prioritized this year should improve margin by about 200 basis points in a normal market.

While we're encouraged by improvements in talent within the technology, customer experience and our financial model, we know that work persists, that the journey is not complete. We remain focused on our strategic plan of building an improved competitive position by being more efficient and having a disciplined operating model that functions well throughout all real estate sites. We have emphasized growing scale in attractive markets across all our lines of business, and we have made great strides in improving the customer experience at [indiscernible].

Retaining key talent is always important. We've been even more focused on retaining talent through this market so that we have the right team in place as the cycle improves. Our efforts are yielding results increased year-over-year market share gains in each of our direct agency, commercial and real estate service businesses.

Let me conclude by reiterating that we have been managing the balance of our expenses and investments thoughtfully to be mindful of necessary operating discipline for the current market challenges, while also remaining dedicated to strengthening Stewart's long-term growth performance. Our solid financial footing should best position us to take advantage of the opportunities that this difficult cycle will provide. Finally, I remain positive on the long-term view of the real estate market and the ability of Stewart to become the premier title services company. Our associates have worked diligently throughout these challenging times and I appreciate all they have accomplished. And I also want to thank our customers for their continued loyalty and support.

Dave will now update everyone for the results.

[David Hisey, executive]

Good morning, everyone, and thank you, Fred. I would also like to thank our associates for their outstanding service and our customers for their continued support.

During the third quarter and through today, the real estate market continues to experience low housing inventory, high mortgage rates and lower commercial and residential real estate activity, contributing to lower third quarter operating results as compared to the third quarter last year. Yesterday, Stewart reported third quarter net income of $14 million or $0.51 per diluted share on revenues of $602 million. Starting this quarter, we revised our presentation of consolidated non-GAAP measures relating to adjusted net income and adjusted EPS by excluding acquired intangible asset amortization from the calculation. This revised presentation allows us to be consistent with how we present non-GAAP measures related to our title and Real Estate Solutions segments. We don't believe this amortization is indicative of our operating performance.

After adjusting for net realized and unrealized gains and losses acquired intangible asset amortization and other items detailed in the Appendix A of our press release. Adjusted net income for the third quarter was $24 million, or $0.86 per diluted share compared to net income of $43 million or $1.58 per diluted share in the third quarter 2022.

Regarding the Title segment, total revenues in the third quarter decreased $126 million or 19% while pretax income decreased by $16 million or 32% compared to the prior year quarter. After adjustments for purchase intangible amortization and other items, the segment's pretax income was $42 million or 8% margin compared to $65 million or 10% margin for the same quarter last year. On our direct title business, total opened and closed orders in the third quarter declined by 7% and 10%, respectively, compared to last year, primarily due to the current real estate environment.

Domestic commercial revenues decreased $9 million or 15%, primarily due to lower transaction volume while average commercial fee per file was approximately $14,200 compared to $13,700 from the prior year quarter. Domestic residential revenues declined $37 million or 18%, primarily due to lower purchase and refinancing volumes. Average residential fee per file in the third quarter was $3,000 or 10% lower than last year's quarter due to lower purchase mix.

Total international operating revenues decreased $5 million or 12%, primarily as a result of lower transaction volumes at our Canadian operations. Given the lower commercial and residential activity in the market, third quarter revenues from our agency operations decreased $75 million or 22% compared to third quarter last year, while the average remittance rate was roughly comparable.

Regarding title losses, total title loss expense in the quarter declined by $3 million or 13%, primarily due to lower title revenues. As a percent of title revenues, third quarter title loss expense was 4.3% compared to 3.9% in last year's quarter, which benefited from favorable claims experience. For the full year 2023, we still expect title losses to average in the low 4% of title revenues.

Related to the Real Estate Solutions segment, third quarter pretax income was $2.6 million compared to $3.4 million last year, primarily driven by a slight dip in revenues and strength in our credit-related data businesses help offset other transactional businesses. Pretax margin was 3.8% compared to 4.8% in the third quarter 2022. After adjusting for purchase intangible amortization, adjusted pretax margin was 13%, similar to the prior year quarter.

On our consolidated operating expenses, our employee cost ratio was 31% in the third quarter compared to 27% last year, primarily as a result of lower operating revenues. Lower operating revenues also resulted in slightly higher other operating expense ratio of 22% compared to 21% last year.

On taxes, our third quarter income tax expense was higher than our normal tax rate of 24% primarily due to additional tax expense resulting from lower utilization of foreign tax credits as we completed and filed our federal tax return. The impact of this true-up on EPS was roughly $0.13 per share. We do expect our tax rate to return to historical levels.

On other matters, we continue to have a solid financial position to support our customers, associates in the real estate market. At the end of the third quarter, our total cash and investments were approximately $380 million over statutory premium reserve requirements, and we also have a fully available $200 million line of credit facility. Total stockholders' equity attributable to Stewart at September 30, 2023 was approximately $1.35 billion with a book value of approximately $49 per share. Lastly, net cash provided by operations in the third quarter was $60 million compared to $49 million during the prior year quarter, primarily due to lower claims and accounts payable payments partially offset by lower net income.

We appreciate our customers and associates and remain confident in our support of the real estate markets. I'll now turn it back to the operator for questions.

[Operator]

[Operator Instructions] Our first question will come from Bose George with KBW.

[Bose George, analyst]

Can you give us an updated thoughts on your margin expectations like for the next 12 to 18 months? And just given your comments on 2024 being a transition year, is 2025 when we should think about a more normalized whatever double-digit margin?

[Frederick Eppinger, executive]

Yes, Bose, thanks for the question. So that's exactly right. So if you remember at the beginning, when I first got here, we talked about targeting high single digits double. I think in about '20 to '21 we achieved that. Obviously, '21 outperformed because it was excess volume. But at a 5 million kind of unit purchase market, I think we were in that 9.5%, 10% range. What's happened is we've done good work, and I think we're in the 11.5%, 12% margin range when you're in that 5 million units range because we've done a lot of work.

The problem is, obviously, is the volume is so depressed now think about it as we have excess capacity, and we can't really extract all that margin. So my view is that '25 like our point of view when you look at forecast, '25 is when we get back to that 5 million kind of range. And so that's where I think you'll see margins get better. I think about the next 2 quarters is quite difficult given where we are and where volumes are, obviously, with the spike that we saw in rates, we're kind of still worse than the previous year, although that comes together, as you know, because last year, at this time, things started really cratering.

And so that will come together a little bit into the first quarter. But -- so it's like a journey from here kind of that first quarter through the transition in next year, particularly second half of next year towards a more normal market in '25. And again, we're not -- the other thing I would say, Bose, we were not -- there's other things we're working on, too, there's other things to improve ourselves, and we're not sitting on our hands. But right now, we have a pretty good transparency to that.

[Bose George, analyst]

That's helpful. And then on investment income, that was up again pretty nicely this quarter. Can you just talk about sort of the trajectory for that? Is this quarter a reasonable run rate? Or could that continue to trend up with rates?

[David Hisey, executive]

Yes, Bose, as we talked about in the last quarter, that's when we were really putting the escrows to work. And I think we had said that's about $2 million a month, which is what it remains. And so you saw the full effect of that hit in the third quarter. And then you saw a little bit of an uptick on the general investment income. I think it's mainly due to the more favorable rate environment. So -- yes, I would say that this is a pretty good run rate where we stand now, although obviously, it's also elected by the float, right?

Yes. I mean balances -- if volumes were continue to go down meaningfully, you could have a negative impact on balances, and that could change it a little bit. The offset is we might be able to get a little bit higher rate. But balances could cause it to dip a little. But I'd say as it stands, it's a decent run rate.

[Operator]

Our next question comes from Soham Bhonsle with BTIG.

[Soham Bhonsle, analyst]

I guess just to start with the moving rates recently, I was just wondering where orders are sort of trending through October. I think September was down sort of 8% year-over-year. So just sort of wondering on the run rate there now.

[Frederick Eppinger, executive]

Yes. The rates have affected order counts. And so I would describe it as a little bit of a shock to the system. And so what you saw at the tail end of this quarter, they started dipping and that has continued into this quarter. And so as I mentioned a couple of seconds ago, I think the -- if you remember last year, the shock started about now and it really started dropping towards the end of the year. So we're still below last year in the fourth quarter. And so we are decreasing we're still below, but I think that will come together a little bit toward the end of the year because last year went down so much. But it's -- there's an impact to what happened in the last 3 weeks for sure.

[Soham Bhonsle, analyst]

So does that mean that we're sort of above or below that sort of 8%? I get that the comps are going to get easier, right, but sort of flattish is the way to think about it then?

[Frederick Eppinger, executive]

I'm [ splashy ], Soham. So I'm saying it's continued down and again, we got both the seasonal impact and you got the impact of rates. So the fourth quarter of orders are going to move down again.

[Soham Bhonsle, analyst]

Okay. All right. Okay. I think I understand. Okay. And then I guess on market share, I'm just curious on some of the drivers there. It looks like refi share picked up quite a bit, and there was also a bit on purchase. So Fred, can you maybe just walk through what you're seeing on the ground and maybe who you think you're taking the share from?

[Frederick Eppinger, executive]

Sure. So each of our businesses have been positioned for growth, right? So in Agency, we were just up until about 15 months ago, right, we were meaningfully behind on ease of use and integrations. That caught up. So there's 14 states in particular that we have targeted and we're starting to get good traction in a lot of them as we introduce -- we kind of reintroduce ourselves to agents or gain shelf space, maybe we have 5% share within and now we go to 10%. So what's happening is as we reintroduce ourselves to agents with a little bit better value proposition, and we have points of new agents. We're getting nice share shift. And again, it's hard work, and it's one at a time. And I think we're in the early innings of that, but it's been, I think, 6 quarters or so where we've seen increases of share.

The other thing is a little unique about us is that we have as a percent, less refi than some of the competitors. And so as that market became with our purchase market, that helped us as well. But -- and that's the story of agency. In direct, but in essence, it's essentially, we're a lot better talent wise than we were 2 years ago. We did a bunch of acquisitions in core [indiscernible]. And while the markets are bad, we're better in many markets, 30 or 40 markets. And so we're holding our own, and we're actually winning a little bit there too. I think that will get better as we -- as the market gets more normal and we get to -- we'll go back to buy more agencies. But right now, we're holding our own and getting a little bit because I think of the capabilities and skills in the markets we have, we were in.

On the lender business, we just -- again, it's really less than a year that we had a full portfolio of these products and services assembled. And so what's happening there is we're able to cross-sell and deepen our relationship with a lot of these lenders because we have a broader portfolio. And what's interesting in lender as we worked with the top 4 before. We were about $30 million of revenue when we started this journey. So that has grown to a $300 million business. So our positioning there is so much better. So I see that kind of organically continuing as we become a legitimate alternative to the 2 big guys.

And then finally, commercial that is also very organic. So what we did there is we've done a lot of the key markets. We've done a lot of hires in direct, that's smaller commercial. We've also done the same thing. We picked the markets that we were interested in. We've made some investments as well there. The other thing that's interesting in commercial, the market is obviously weigh down, but one of our real strengths is energy and energy is up, right? So if you look at -- energy was probably 13% of our business last year, probably 25% of our business now. So we have a benefit of having a resilient mix because of our areas of expertise. But we've also invested quite a bit in commercial.

So again, all of these businesses, my view is over the long haul, we're set up to gain share. And as the market comes back, I think that's actually going to be more robust because again, in down markets, people are a little bit reluctant to change allegiances and so I think it's going to only get better if we can stay focused and make sure we keep enhancing kind of our value proposition. But I'm happy with the effort of the team. It's a tough thing. We're balancing really thoughtful expense management but also trying to be targeted in our investments to make sure we keep improving. And it's showing some progress, which is good.

[Soham Bhonsle, analyst]

Yes. No, that's great to hear. And just one more, I guess, on commercial. I'm wondering on the fee per file side, it was stronger than what your peer reported this morning. So -- just can you just talk about the drivers? Is it the energy piece that you're talking about? And then how do you sort of see the fourth quarter development here?

[Frederick Eppinger, executive]

Yes. So there's a caution. For us, we're not huge, right? So they're very lumpy based on what [ mix close ]. But your insight is right. So if you look at some of the energy deals, we're quite large. That drove some of that. So again, it's -- we tend to be a little lumpy on that on the size because of we just don't look that big. So 3 deals could really matter. But again, as I look forward, it's a tough market, right? Commercial is down pretty significantly. It's probably down if you look at industry data, probably 40%, 50%, we're down less than that because we're being a little successful but it's a down market, and it will continue to be.

What's weird about commercial, that's a little bit, in my view, something that we have to understand and understand the risk. So it tends to have a lot of closings in December. And we have a lot of business and we have a lot of stuff in the pipe and we have a lot of files. But with this market uncertainty could a different percent close at the end of the year. And so that's the one thing I'm watching because, again, we've got lots of pipe. We've got lots of activity. But it's a weird business where December by far is always our biggest month and so we've obviously got to focus on that. We'll see how that turns up. But in general, I'm very comfortable with how we're attacking the market.

[Operator]

[Operator Instructions] Our next question will come from John Campbell with Stephens, Inc.

[John Campbell, analyst]

I just wanted to check maybe on the other orders. I mean I think you had a -- it was over 100% sequential increase, a pretty big step up there. Hoping you can maybe help with the modeling there. I think David, in the past, you've said that that's not going to be too seasonal that won't really mirror the purchase seasonality. But I'm curious about how to model that going forward? And then also, if you can maybe help with the average fee per file of the other orders.

[David Hisey, executive]

Yes. No, John. I mean that's where the home equity stuff and the institutional real estate business that we acquired at the end of last year. That's where those orders go there -- particularly the institutional real estate is a bit lumpy because it's all a function of vault purchases and then securitizations.

In terms of the average fee per file, the reverse stuff tends to be more like a purchase transaction and then some of the institutional stuff when you buy the deal is like a purchase transaction, but then the securitization tends to look more like a refi transaction. And so it's pretty lumpy. I would say, fee per file is probably going to be a little closer to purchase just because it's probably more heavily weighted bulk acquisition and then reverse. But timing of securitizations can sway that quite a bit.

[John Campbell, analyst]

Okay. How would you suggest maybe -- I mean I get the lumpiness, but it seems like pretty steadily each month in the quarter you reported a fair amount higher than what you've seen on average last couple of quarters. But how should we think about modeling that? I mean do you see just kind of continued momentum and then maybe taking that down next year?

[David Hisey, executive]

Yes. I mean you have to think about those individual markets. And so if you think about reverse. Last fall, it was a little choppy because you had the capital markets issues and so securitizations weren't getting done as much. But that's recovered, and then there's also better [indiscernible] if you watch the -- for the [ Tom sell ] commercials when you see him on a lot, that usually means reverse is doing pretty well. But when you don't see him, it's not doing very good, and we have seen Tom lately because I think that markets continue to come back. The institutional side is still pretty choppy. I mean it's -- if you just think about the rent, price-to-rent ratio and stuff like that, it's pretty choppy. I mean, my sense is that would continue to get better over time, but it's probably a slower recovery.

[John Campbell, analyst]

Okay. Makes sense. And then just a 2-part question on the tax rate. I mean, the 33%, it sounds like that was the lower foreign tax credits. But first, from a GAAP standpoint, I think that was like a $0.09 or maybe $0.10 EPS drag for you guys. It doesn't look like you added that back to your -- the reported adjusted EPS metric. So I guess, first, is that right?

[David Hisey, executive]

Yes, we did not. We tend not to focus as much on the tax stuff. But if you were to normalize it, you're right, it would be a big impact, like you said.

[John Campbell, analyst]

Okay. That's helpful. And then secondly, it sounds like you're viewing that the lower foreign tax credit as a onetime, but then David, I just want to make sure you reiterate that, that expectation that that's going to normalize moving forward?

[David Hisey, executive]

No, that's right. I did say in my script that we expect the tax rate to come back to what we spend historically. We have had some lumpy periods. It just hasn't been as evident where we probably had $2 million, $3 million similar type adjustments. It's just -- since we had a lower income base, it's more pronounced this quarter.

[Operator]

This does conclude today's Q&A. I'll now turn the call back over to our presenters for any additional or closing remarks.

[Brian Glaze, executive]

Well, I want to thank everybody for the interest in joining our call. Thank you very much. Appreciate it.

[Operator]

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.